PATRIOTISM VS. PR O F I T S : WHAT SHOULD A FIRM DO? One way

PATRIOTISM VS. PR O F I T S : WHAT SHOULD A FIRM DO?
One way that business can influence government is to circumvent governmental mandates through creative use of loopholes. This can improve corporate profits, meeting one of business’s responsibilities, but does business have any responsibility to the governments whose resources enable them to grow and prosper? According to a report filed by Citizens for Tax Justice and Change to Win, Wal-Mart avoided $2.3 billion in state taxes from 1999 to 2005. Wal-Mart is not alone in this strategy; big box retailers and other companies across the country have used a variety of tactics to avoid paying taxes whenever possible. Wal-Mart is simply the biggest of the lot and, by all accounts, the most adept at keeping costs down. One of the techniques Wal-Mart has used is basically to rent its stores but then pay itself the store rent. One Wal-Mart subsidiary pays rent to a real estate investment trust (REIT), which can receive a break on taxes if it pays out dividends. Another Wal- Mart subsidiary owns 99 percent of the REIT and thus receives the dividends tax-free. This corporate tax loophole is illegal at the federal level, but states have been slower to plug it. Many are scrambling to do so now. Still, as one loophole is plugged, another one opens. These various tax-saving strategies that firms are employing have helped to lower the share of income tax that companies pay while individual income tax payments continue to rise.
1. Who are the stakeholders and how are they affected by Wal-Mart’s cost-saving strategy? Are Wal-Mart’s actions in trying to minimize income tax payments in any possible way socially responsible?
2. Do companies have a responsibility to pay a fair share of income tax to state and federal governments? Who determines what that fair share should be?
3. Where do you draw the line on tax savings by corporations? Are the above REIT strategies acceptable?
4. After receiving the bulk of U.S. government contracts to fight the wars in Afghanistan and Iraq, Halliburton relocated its operations to Dubai, a haven from U.S. taxes. Senator Leahy described this move as “the wickedest of entrepreneurial greed.” Do you agree or do you find the move acceptable?
5. Although Enron paid no taxes in 2002, they received a $278 million tax rebate on a tax break from stock options cashed in by employees. The study also found that Enron paid no taxes in four of the five years from 1996 to 2000, during which time the company collected $381 million in tax refunds. Is this socially responsible behavior?
6. U.S. law bans virtually all commerce with countries like Iran, Syria, and Libya that have sponsored terrorists. However, three Fortune 500 firms— Halliburton, Conoco-Phillips, and General Electric —were identified in the report as doing business in Iran and Syria. The law contains a loophole that these firms utilized: it does not apply to any foreign or offshore subsidiary run by non-Americans.
7. What implications do these situations hold for industrial policy? What would you do if you were a CEO of one of these corporations? What changes would you make, if any, if you were a government official? Are there lines that corporations should not cross? If so, what are they?